Foreigners hover near fast-growth local banks

Posted on 09.20.06 by StockPK Team @ 2:33 pm    

Foreign banks are beating a path to Pakistan’s financial sector, attracted by reforms that have laid the platform for rapid growth and rising incomes.

Asia-focused Standard Chartered earlier this month completed the $487 million purchase of a 95.37 per cent stake in Union Bank Ltd - the biggest buy yet by a foreign bank in Pakistan.

Singapore’s Temasek Holdings, Dutch ABN Amro and HSBC are among other foreigners eyeing possibilities in Pakistan, according to bankers here.

Khawaja Iqbal Hassan, President and Chief Executive of NIB Bank (NDLC-IFIC Bank) - majority owned by Temasek - confirmed his intention to acquire a bank, but did not give specific details.

“Part of our strategy is to always look for interesting acquisition targets,” Hassan told Reuters.

Barclays Plc has hired senior Pakistani bankers and is expected to send a team soon to assess the local market, said a senior banker familiar with the British bank’s interest.

“Barclays is very much interested in entering Pakistan, but it has not yet decided whether to start branch operations or to acquire a bank,” said the banker.

It’s not just foreigners who are looking to buy. MCB Bank and Faysal Bank are also scouting around.

State Bank Governor Shamshad Akhtar said on Monday more international banks were looking at Pakistan with keen interest and some were already talking to local banks. She said the banking sector would likely see more consolidation because of higher capital adequacy ratios and new regulations under Basel II.

Major banking reforms pushed through by Prime Minister Shaukat Aziz have helped the economy’s rehabilitation.

Banks’ profits grew 87 per cent in the year to June and are expected to grow at around 44 per cent this year, according to Muhammad Imran, analyst at Jahangir Siddiqui Capital Markets.

“The growth in banks’ profits is driven by core banking activities and looks sustainable despite a high base,” he said. Driven by high profits, bank sector stocks have gained 25 per cent so far this year, outperforming a near four per cent rise on the broader stock index.

John W Wall, the World Bank’s Country Director for Pakistan, said earlier this week Pakistan had the soundest and safest banking system in South Asia.

Foreign banks are also eyeing a relatively untapped retail sector outside main cities. With Union Bank now sold - it is now the country’s sixth biggest bank by assets - analysts and officials say mid-sized PICIC Commercial Bank, Soneri Bank and Prime Bank are the next likely targets for foreign buyers.

Standard Chartered paid over 17 times Union Bank’s 2005 earnings and 5.6 times its net asset value as of end-March. Potential buyers will try to pay less for other banks.

“Nowadays, asset value is a bit inflated. The Union Bank deal has inflated expectations further,” said a senior official at one of the banks stalking the Pakistan market.

Neither ABN AMRO nor HSBC would officially confirm plans to buy in Pakistan, but there was little denying the possibility.

“The market has a potential of consolidation, so the consolidation will create opportunity,” said Naveed A Khan, ABN Amro’s Country Manager in Pakistan, adding the bank wanted to create a network of 50 branches within three to four years.

Source: The News